- Kitco: The silver market deficit and price manipulation will eventually lead to a triple-digit price
- MoneyMetals: The gold/silver ratio is historically high and is likely to quickly revert to its average despite price manipulation
- Von Greyerz, Gold Switzerland: The new rules for gold and five reasons for them
Kitco: Silver market deficit will eventually lead to a three-digit price
Hope industry is experiencing significant manipulation due to its dual role as an industrial metal and an investment asset, claims First Majestic Silver's CEO Keith Neumeyer In an interview with Kitco News . He emphasizes that the trading desks of major banks treat silver merely as a number on a screen, without considering its fundamental value. Neumeyer told Kitco News:"These traders, like the one I used to be, do not understand that this is an important metal that should be trading at a much higher price."The global silver deficit is expected to grow by 17% and reach 215.3 million ounces by mid-July 2024, driven by both increased industrial demand and a decline in supply. This ongoing deficit highlights silver's critical role across various industries, including electronics, solar panels, and electric vehicles. Neumeyer emphasizes the strategic importance of silver for the development of technology and renewable energy. The silver market has experienced a structural deficit for four consecutive years, with the current deficit at 240 million ounces. Institutional investors have largely overlooked the silver market despite its crucial economic role. Major institutions, such as Canada's pension system, do not hold significant positions in silver or mining stocks. This lack of institutional support is seen as a missed opportunity, leaving the market primarily reliant on retail investors and smaller players. Neumeyer predicts that silver will rise to triple-digit figures due to ongoing market deficits. He believes that the potential for triple-digit silver prices is based on its essential role in the production of green energy and industrial applications. Neumeyer remains optimistic about silver and other commodities, urging investors to seriously consider this sector.
MoneyMetals: The gold/silver ratio is historically high and is likely to quickly return to its average despite price manipulation
Money Metals' Mike Maharrey writes the imbalance of the gold/silver ratio. He mentions that a couple of months ago, the gold/silver ratio broke an important support level, indicating that the white metal could be closing the gap to gold.The gold/silver ratio indicates how many ounces of silver are needed to purchase one ounce of gold, taking into account the spot prices of both metals. In other words, it tells you the price of gold in terms of silver ounces. According to an article by MoneyMetals, the gold/silver ratio is 76-1 (the value is 85 at the time of writing this article). This means that 76 ounces of silver are needed to buy one ounce of gold. The ratio is still historically high, indicating that silver is undervalued compared to gold. The article states that there are signs that the trend is reversing. The gold to silver ratio has recently averaged between 40-1 and 60-1. When the gold/silver ratio rises significantly above this historical average upper limit, it tends to return quickly to the average. For example, in 2020, the gold to silver ratio reached a record 123-1 when the COVID hysteria swept the world, and it collapsed to around 60-1 when central banks around the world began printing money to help governments maintain their economies.
Silver has significant upside potential.
Silver may therefore be ready for a significant rise according to the article, as the scenarios appear to be bullish for gold with the increasing likelihood of rising interest rates. Silver demand is also at record levels, but supply has stalled. Silver demand is expected to reach 1.2 billion ounces this year. This would be the second-largest annual silver demand ever. Supply forecasts, considering the current level of demand, would create a structural market deficit of 176 million ounces. This would be the fourth consecutive year in which demand exceeds supply, further reducing the world's silver reserves.
Based on the fundamental factors of supply and demand and the technical breakdown of the gold/silver ratio, it may be an excellent time to buy silver at the beginning of an uptrend, writes Money Metals' Maharrey.
The invisible hand affects the price of silver.
In the second article, Brien Lundin of Money Metals, a writer for Gold Newsletter, discusses the failure of silver prices to keep up with gold prices and suspects manipulation, possibly from investment banks and the government. JPMorgan Chase, the administrator of the silver ETF SLV, has previously manipulated markets and paid significant fines, including a $920 million fine for manipulating metal markets. Lundin claims that suppressing silver prices has been U.S. policy since 1965, when silver was removed from currency. President Lyndon B. Johnson warned against hoarding silver coins, but as inflation rose, their value increased, which actually led to the hoarding. JPMorgan Chase's close ties to the U.S. Treasury and its role as the administrator of large ETFs like SLV and GLD have raised suspicions of government involvement in market manipulation. Although JPMorgan executives deny it, evidence presented in a 2020 lawsuit showed that central banks, including the U.S. government, are significant players in the metal markets. According to Lundin, the "invisible hand" seems to affect the silver market in the same way as the gold market, which he believes indicates systematic attempts to suppress prices.
Von Greyerz, Gold Switzerland: The new rules of gold and five reasons for them
The rise in gold prices this spring has been nothing short of spectacular, writes Jonni Stoeferle of Von Greyerz.\xa0 In just a few weeks, the price of gold rose by nearly 20 percent in U.S. dollars, and in the first half of the year alone, the increase was 21.7 percent. In euro terms, the price of gold rose by 16.4 percent in the first half of the year. According to previous rules of the game, the price of gold should have fallen. The collapse of the correlation between the price of gold and real interest rates raises many questions. According to the old model, it was unthinkable that the price of gold would strengthen during a sharp rise in real interest rates. Gold and gold investors are now moving into terra incognita, uncharted territory, writes Von Greyerz.The growing demand for gold raises prices simultaneously with the rise in real interest rates
Von Greyerz notes that in addition to the strong negative correlation between the price of gold and U.S. real interest rates, the once-strong connection between Western investors' demand and the price of gold has diminished in recent quarters. Thus, Western financial investors are no longer marginal buyers or sellers of gold. Significant demand from central banks and private Asian investors is, according to Von Greyerz's article, the main reason why the price of gold has succeeded even as real interest rates rise.
Interest in gold continues to grow in the global East
On the other hand, the global East is becoming increasingly important. This is not surprising according to the article, considering that the West's share of global GDP continues to decline as growth weakens and populations age. Additionally, many Asian countries have a historical affinity for gold. In China, interest in gold is growing: China is discovering gold as an alternative retirement asset precisely due to structural problems in the real estate markets. Gold nuggets are currently trendy, especially among China's youth. The strong demand for gold from Asian central banks is also a significant driver of this change.
The share of central banks in total gold demand is increasing
Thirdly, demand from central banks accelerated significantly after Russia's currency reserves were frozen following the outbreak of the war in Ukraine. As a result, central banks' demand for gold reached a new record high in 2022, exceeding 1,000 tons, with only a slight decrease in 2023. Q1/2024 was then the strongest first quarter since records began. It is therefore not surprising that the share of central banks in total gold demand has increased significantly: from 2011 to 2021, the share of central banks hovered around 10 percent, while in 2022 and 2023, the share was nearly 25 percent. Geopolitical instability is the third most important reason for central banks' investment decisions. And according to the article, geopolitical instability will continue for some time.
A major debt crisis could affect leading industrial countries as well
Fourthly, the situation is influenced by the growth of total debt among states, corporations, and households. Japan leads with an "ignoble" top position with a debt-to-GDP ratio of just over 400 percent. France ranks second globally and first in Europe at 330 percent, making it a much larger problem child than Italy, which has been heavily criticized in the media. Italy's total debt is about 80 percentage points lower. The unclear political situation following the surprising electoral victory of the far-left New People's Front in the unexpectedly held new national assembly elections in France further exacerbates France's debt situation. In the United States, the ongoing, very loose fiscal policy has resulted in a massive debt problem, and there is no quick relief in sight with the elections approaching. According to Von Greyerz, the next major debt crisis could affect some leading industrial countries.
Alternative asset classes for the investment portfolio
Fifthly, the article recommends a change to the traditional investor portfolio allocation (60/40). The author argues that the investment environment for gold investors has fundamentally changed. The restructuring of the global economic and political order, the dominant influence of emerging markets on the gold market, reaching the limits of debt sustainability, and possibly several waves of inflation are driving the appreciation of gold. Alongside gold, the article also sees other alternative asset classes, such as commodities and Bitcoin, as important in the investment portfolio according to the new rules of the game for gold. According to the author, an appropriate portfolio consists of 60% stocks and bonds + 40% alternative asset classes.
